US growth slows sharply in the third quarter; consumer spending strong at 3.2%

Low fuel prices have been good news for consumer spending, which accounts for more than two-thirds of US economic activity.

Consumer spending grew at 3.2% in the third quarter, down from 3.6% in the second but still a strong reading.For several months there has been intense debate about when the US central bank will raise interest rates

United States growth slowed sharply in the third quarter of the year. GDP grew at an annualized pace of 1.5% between July and September, according to the Department of Commerce, down from 3.9% in the second quarter. The slowdown was partly due to companies running down stockpiles of goods in their warehouses.

On Wednesday, the Federal Reserve kept rates unchanged and said the economy was expanding at a moderate pace.

Low oil prices have hit US energy firms so far this year. But lower fuel prices have been good news for consumer spending, which accounts for more than two-thirds of US economic activity. Consumer spending grew at 3.2% in the third quarter, down from 3.6% in the second but still a strong reading.

Analysts said that the running down of warehouse stockpiles in the third quarter was likely to be a temporary effect and they expected growth to accelerate again in the fourth quarter.

The headline number isn't great but this masks underlying strength, said Luke Bartholomew at Aberdeen Asset Management.

Inventory adjustment was a drag but final domestic demand is much stronger suggesting the fundamentals of the economy remain solid.

For several months there has been intense debate about when the US central bank will raise interest rates, and now the focus is on its last meeting of the year in December.

The Fed has said in past statements that it expects to raise rates in 2015, and that labor market participation, inflation and the global economy would be the key factors in its decision.

In its latest statement on Wednesday, the Fed said: In determining whether it will be appropriate to raise the target range at its next meeting, the committee will assess progress - both realized and expected - toward its objectives of maximum employment and 2% inflation.

However, the Fed dropped comments, which had been used in the previous month's statement, that weaknesses in the global economy could affect the US. Financial markets interpreted this as a sign that the Fed might be more likely to raise rates in December.